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TRW AGREES TO SELL AEROSPACE BUSINESS TO GOODRICH

18 Jun 02. TRW Inc., has agreed to sell its aeronautical system businesses to aerospace parts maker Goodrich Corp. for $1.5bn in cash.

The deal, approved by the boards of directors of both companies, “will expand Goodrich’s product line and open new growth opportunities,” Goodrich chairman
and chief executive David L. Burner said.

Burner predicted annual cost savings of $30 to $40m within the first three years after the deal closes.

“This is a strategically important acquisition for us as we continue to add value by building on our core aerospace base,” he said. The agreement, set to close by the end of the fourth quarter, is subject to approval by U.S. and European regulators.

It was not immediately clear how the deal might affect a hostile takeover bid for TRW from Northrop Grumman. The Los Angeles-based defense contractor agreed last month to delay its $6.7 billion bid while it examines the company’s private records under a confidentiality agreement.

Northrop spokesman Randy Belote said the company is determined to pursue TRW after it completes its review of TRW’s financial information.

The deal with Goodrich “takes some of the risk out of the equation” of the Northrop bid, he said.

TRW chairman Philip A. Odeen said the sale of the aeronautical systems unit was needed to cut debt as the company’s remaining parts — its automotive parts and systems and space/defense units — separate.

“We need to get the debt down so these (two separated) companies both will have a good balance sheet and will be able to be at investment grade,” he said. Odeen said the company still is holding about $5.5 billion in debt, largely resulting from TRW’s acquisition of British auto parts maker LucasVarity PLC in 1999.

“Our goal, I think we’ve pointed to at various times, is to get the debt down by about $1.6- to $2 billion this year,” Odeen said. “So we’re essentially where we need to be to proceed with our plan.”

Odeen said TRW is still open to offers for its space-defense unit. “Northrop, of course, is one of the companies we’re talking to,” Odeen said. “I know Northrop has said publicly they were not interested in the aeronautical business. They would plan to sell it. The other bidders, I think, feel the same way.

“So I think this makes the whole process a little tidier, a little neater, a little simpler, maybe, and it will facilitate our opportunity to explore other alternatives.”

TRW also plans to spin off its automotive division into independent company called TRW Automotive Inc.

“This needed to be done prior to us taking any action such as spinning off our automotive division into a standalone entity,” TRW spokesman Jay McCaffrey said. TRW Aeronautical Systems had 2001 revenue of $1.1bn and earnings before taxes and special items of $180m. Goodrich’s aerospace sales were $4.2bn in 2001.

About 55 percent of TRW Aeronautical Systems’ sales are original equipment and the rest from parts. Military sales account for 25 percent of the total, complementing Goodrich’s growth in that sector.

McCaffrey would not discuss whether there were other bids for the aeronautical division, the smallest of the company’s four divisions. It is based in Solihull, U.K., and has manufacturing facilities and other operations in nine countries, employing about 6,200 people.

Goodrich is completing its makeover from an Akron, Ohio-based tire maker named BFGoodrich. The company no longer makes tires. Charlotte-based Goodrich makes landing gear, engine components and electrical systems for commercial, business
and military aircraft. It employs 18,000 people in 20 countries.

Comment: This announcement is unlikely to deter Northrop from continuing the takeover of TRW. In fact the purchase of this segment in the late 190’s was considered too expensive by some analysts and caused some of the problems leading up to TRW’s current problems, stretching the balance sheet. Northrop

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